Buyers pay higher prices; gripe about long leadtimes
Mary Clair Austin -- Purchasing, 6/17/2004 2:00:00 AM
The electronics economy continues to be boosted by improved corporate and consumer spending, which is apparent in extended leadtimes and higher prices impacting various electronic parts and components. "It seems as if the 'faucet' just got turned on," says a purchasing manager for a printing machine manufacturer in Wheeling, Ill. "We make relatively expensive equipment, yet buyers of our product have opened up their wallets and the orders are coming in faster than we have seen in some time. For the first time in years we are actually running a sales backlog out as far as six months."
More personal computers will be replaced this year and next than in the scramble leading up to the Y2K electronic systems changeover. About 120 million personal computers will be replaced this year, according to Stamford, Conn.-based The Gartner Group, with 140 million more computers likely to be replaced next year. The swap represents a 13.6% rise in PC shipments worldwide this year and 9.8% in 2005.
And that underscores the fact that purchases of electronic parts and components are increasing steadily as end-product demand perks up. U.S. Department of Commerce economists are predicting that component sales will rise this year because of information-technology investment by small- and medium-sized businesses. The Federal Reserve Board's latest Beige Book agrees, for example, that orders for high-technology products increased in the important Dallas and San Francisco districts.
Little wonder that 88% of the buyers at electronic-consuming companies polled in May by Purchasing magazine reported business being as good or better than it had been in April. In fact, most of the buyers in electronic parts-using companies described general business conditions as "very positive," "upbeat" and "increasing."
The senior buyer for an electronic products company in Racine, Wis., says orders are increasing. "We have the largest backlog in the history of the company," adds a purchasing agent in Washington State. The commodities manager of a Cleveland-based electronics company also says leadtimes are increasing. In fact, numerous buyers are reporting extended leadtimes and tightening supply for semiconductors and other memory products as well as connectors, discrete devices and military-specification components.
However, more than half of the buyers surveyed in May report improved business for microchips, flat panel displays, mobile phones and entertainment electronics as well as PCs and servers. Not only do the majority of the buyers agree with the economist's view of the market, they also report increases in prices of both end-product electronics and their components. In fact, May-over-April price hikes were reported for every one of the electronic components and commodities listed in the monthly survey. "Price increases have reached 'bandwagon' epidemic proportions," says a purchasing agent in St. Louis.
Data from the monthly survey shows that electronic companies are buying for production to keep their factories humming, but they are not buying for inventory. "It is difficult to build inventories with metals prices so volatile," says a Michigan industrial automation equipment firm's purchasing agent. "Shortages on electronic components make building inventory difficult."
A large manufacturer of custom architectural loudspeakers in California, notes problems buying electronic components because of long leadtimes and no availability on some products. "We are experiencing shortages of electronic components," agrees the purchasing agent in Wisconsin, whose supply concerns are mirrored by many other buyers. Another electronic components buyer says that, in general, the audio/video connector industry has been in short supply.
Actually, the survey shows that component purchasing this year has been somewhat volatile, largely depending on the type of electronics. One of the most active market arenas has been semiconductors, where purchasing is growing significantly in the second quarter to $51 billion from $47 billion in the first three months of the year.
For this reason, semiconductors are one of the electronic component sector with tightened availability, remarks the purchasing manager for a power conversion equipment manufacturer in Camarillo, Calif. "In the quartz and silica glass segment, leadtimes are extending out from 8 weeks to 12-16 weeks," says the buyer of a semiconductor maker outside Phoenix. "High-volume material is on allocation and all discounts have been discontinued."
Some buyers complain that the recovery in manufacturing of electronic end products has been somewhat ragged, so they question the timing of such comments as "electronics has now moved solidly into the sweet spot in the business cycle" from James Haughey, chief economist for Reed Research Group in Newton, Mass. Not all consumer and industrial economics companies are experiencing growth yet. "Sales are still depressed," says a purchasing manager in Alpharetta, Ga. "Our industry has been up and down recently," says the buyer at a California electronics company. "We have managed to weather the storm and hopefully stability is in the near future."
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